States will seek waivers to manage Medicaid

May 1, 2010

The challenge of implementing various components of health reform was immediately apparent as one of the first new programs went into effect: establishing state high-risk pools for individuals with pre-existing condtions.

State insurance regulators, moreover, will oversee how health plans meet new regulatory requirements.

The challenge of implementing these reforms was apparent immediately as one of the first new programs went into effect: establishing state high-risk pools for individuals with pre-existing conditions. To get the program going by July 1, Health and Human Services (HHS) Secretary Kathleen Sebelius queried state governors and insurance commissioners in early April on whether they would take on this task or have HHS provide appropriate coverage in their states.

State regulators also are scrambling to implement insurance market reforms that go into effect this year, such as eliminations of lifetime and annual limits, curbs on policy rescission, and family coverage of dependents until age 26. A new medical loss ratio policy requires health plans to spend 80% of revenues on care or issue rebates to customers. States have to work with HHS on a process for reviewing and challenging annual premium increases.

States have a four-year window to prepare for the most significant changes. In 2014, Medicaid programs will cover more low-income populations, state insurance exchanges should be up and running, and the individual mandate will go into effect.

Expansion of Medicaid to cover adults up to 133% of the federal poverty level will be a huge undertaking, particularly for states that now have fairly restrictive eligibility rules, such as Texas, Alabama and Arkansas. Other states that already cover populations at this income level are looking to gain early federal support for their programs.

In 2014, the federal government will provide enhanced funds to all states to support expansion of Medicaid and CHIP. States are calculating the infrastructure and reimbursement impact of Medicaid expansion after federal subsidies disappear in 2017.

STATES HAVE LIMITED RESOURCES

State regulators also must develop standards for insurance exchanges. Policies offered through exchanges will have to offer "essential" health benefits, cover all applicants regardless of health status, and disregard age and gender when setting premiums.

With many states already slashing budgets for healthcare in the wake of the economic recession, officials are wondering how they will find the resources to accomplish these tasks.

"It's up to states to make reform work," commented Vermont's Republican governor Jim Douglas at a National Governors Association health reform summit in March. Douglas noted that healthcare is the largest cost for most states and urged flexibility in meeting new standards. West Virginia's Democratic governor Joe Manchin agreed that under a one-size-fits-all approach to Medicaid, "costs will be catastrophic" and that states will seek waivers to fit new Medicaid programs to local circumstances.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.